Inflation: the quiet force behind every figure on this site
Inflation means prices rise over time, so each pound buys a little less than it used to. It rarely feels dramatic day to day, but over a 20-30 year retirement it can have a bigger effect on your standard of living than almost any other single factor — which is exactly why every tool on this site shows its results in today's money rather than future inflated pounds.
Why "today's money" is more useful. A projection saying your pot will be worth £600,000 in 25 years sounds reassuring, but it tells you almost nothing useful on its own — you'd have to mentally work out what £600,000 will actually buy in 25 years' time after decades of rising prices. Showing the figure in today's terms instead — say, £280,000 — answers the question you actually care about: roughly what would that be worth if you had it in your hand right now? It's a far more honest basis for deciding whether a plan is realistic.
How we calculate it. Every calculator on this site uses what's called a "real return" — your expected growth rate minus your assumed inflation rate. For example, if your investments are assumed to grow at 6% a year and inflation is 3%, your money is really only getting about 3% better off in terms of what it can buy. Your spending and withdrawal figures are then held flat at today's level, rather than artificially inflating them year by year — the two approaches are mathematically equivalent, but using a real return keeps every number on the page in language you can intuitively understand.
Cash is hit hardest. Money in a savings account that earns less interest than the rate of inflation is quietly losing purchasing power even while the balance on your statement keeps climbing. This is one of the main reasons it's worth holding some investments for the long term alongside cash — see our guide on cash vs investments.
Why your assumed rate matters. Small differences in your assumed inflation rate compound significantly over a long retirement. The Bank of England targets 2% inflation, but the UK has seen considerably higher rates in recent years. We default to 3% as a reasonably cautious middle-ground assumption across our tools, but you can adjust it yourself on the Drawdown Tool page to see how sensitive your numbers are to this assumption.
As with everything on this site, these are illustrative assumptions, not guarantees — actual future inflation is unknowable in advance. If inflation risk is a significant concern for your circumstances, a regulated independent financial adviser can talk through strategies — such as inflation-linked gilts or a higher equity allocation — that are designed specifically to help protect against it.